Supreme Court Upholds State’s Authority over Industrial Land Allotment in Rajasthan: Bishambhar Prasad vs. Arfat Petrochemicals (2023)

Date of the Judgment: April 20, 2023
Citation: 2023 INSC 367
Judges: Surya Kant, J. and Vikram Nath, J.
Can a state government revoke permissions granted by a state industrial development corporation for land use changes? The Supreme Court of India recently addressed this question in a dispute over industrial land in Rajasthan. The core issue revolved around whether the Rajasthan State Industrial Development and Investment Corporation (RIICO) had the authority to allow a change in land use from industrial to commercial, and if the State Government could subsequently cancel those permissions. The Supreme Court, in a judgment authored by Justice Surya Kant, ruled in favor of the State, upholding its authority over land allotment.

Case Background

The case originates from the allotment of approximately 271.39 acres of land in Kota, Rajasthan, to J.K. Synthetics Ltd. (JKSL) in 1958. The land was leased for industrial purposes, with specific conditions on its use. Over the decades, fresh lease deeds were executed between JKSL and the District Collector, Kota. In 1979, the Rajasthan State Industrial and Mineral Development Corporation Ltd. (RSIMDC) was incorporated for development projects, later succeeded by RIICO. The State Government issued an order to allot all industrial lands to RIICO. However, disputes arose regarding whether this order included the land already leased to JKSL.

JKSL faced financial difficulties and was declared a “sick company” by the Board for Industrial and Financial Reconstruction (BIFR) in 1998. M/s Arfat Petrochemicals Pvt. Ltd. (Respondent No. 1) entered into agreements with JKSL to take over its Kota unit and revive its operations. The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) sanctioned a rehabilitation scheme in 2003, which included the transfer of 227.15 acres of land to Respondent No. 1.

In 2007, seven fresh lease deeds were executed between the District Collector and Respondent No. 1, maintaining the industrial purpose of the land. However, the industrial units were not revived, and a dispute arose between the workers’ unions and Respondent No. 1. In 2018, Respondent No. 1 sought a change of land use to commercial, which was initially approved by RIICO, but later cancelled by the State Government.

Timeline

Course of Proceedings

The Rajasthan High Court initially heard the case, which was later transferred to a Division Bench. The High Court ruled in favor of Respondent No. 1, quashing the State Government’s decision and RIICO’s actions to cancel the land allotment. The High Court held that RIICO had the authority to allow the change of land use under the RIICO Disposal of Land Rules, 1979 and that the State government’s decision was arbitrary and violated the principles of natural justice. Aggrieved by the decision of the High Court, the State of Rajasthan, RIICO, and various workers’ unions appealed to the Supreme Court.

Legal Framework

The legal framework for this case includes the following:

• Section 100 of the Rajasthan Land Revenue Act, 1956: This section empowers the State Government to make rules for regulating sales of land in industrial and commercial areas and impose annual assessments.
  
  “100. Sale of land in Industrial and Commercial Areas – The State Government may make rules regulating sales of lands in industrial and commercial areas and may also impose an annual assessment of such lands, wherever necessary.”
• Rajasthan Industrial Areas Allotment Rules, 1959: These rules regulate the allocation of land to entrepreneurs and the development of industrial areas. Key rules include:
  • Rule 2: Specifies the period for which land may be allotted on a leasehold basis, typically for 99 years.
    
    “2. Period for which land may be allotted.- Land in industrial area may be allotted on lease-hold basis for a period of 99 years-
    (a)for setting of a large-scale industry anywhere in the state, by the State Government in the Industries Department and in the case of large-scale tourism unit, the allotment shall be made by the Government in the Revenue Department and
    (b)for setting up of other industries –
    (i)in Jaipur District, by the Director of Industries, Rajasthan Jaipur provided that in case of a tourism unit the allotment shall be made by the Government in the Revenue Department, and
    (ii)in any other district, by the Collector concerned.”
  • Rule 8: Stipulates that land given for industrial purposes cannot be used for any other purpose, except for factory premises and residential quarters for those engaged in the industry.
    
    “8. Land not to be used for other purpose. – (1) The land given for industrial purposes shall not be used for any other purpose except constructing factory premises and such other residential quarters as are required for those engaged in that industry. No constructions shall be permitted which may have the object of using it as a commercial undertaking other than the industry permitted to be established.”
  • Rule 9: Restricts the lessee’s right to sell the land and outlines conditions for assignment, including pledging land for loans and transferring rights with permission from the allotting authority.
    
    “9. Lessee debarred from sale of land etc. – The lessee shall have the limited ownership on the land leased till the lease subsists and shall have the right of assignment only for the purpose of taking a loan for the development of the industry or for pledging as collateral security for a loan taken by the lessee or some other industry owned by the same management. The lessee shall have no right to sell the land:”
  • Rule 11A: Addresses the allotment of land to the Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) for developing industrial areas on a leasehold basis.
    
    “11-A. Allotment of land to the Rajasthan State Industrial Development and Investment Corporation Ltd. or Rajasthan Tourism Development Corporation –
    Land shall be allotted to the Rajasthan State Industrial Development and Investment Corporation Ltd. or Rajasthan Tourism Development Corporation for setting up and developing Industrial Areas, on the following terms and conditions :-
    (i)The land shall be allotted on lease hold basis for a period of 99 years;”
  • Rule 12: Empowers RIICO to make allotments in accordance with the RIICO Disposal of Land Rules, 1979, in industrial areas notified by the State Government.
    
    “12. Allotment of land by Rajasthan State Industrial Development and Investment Corporation Ltd. [or Rajasthan Tourism Development Corporation.
    The Rajasthan State Industrial Development and Investment Corporation Ltd. Jaipur or Rajasthan Tourism Development Corporation shall be empowered to make allotment in accordance with the Rajasthan State Industrial Development and Investment Corporation Disposal of Land Rules, 1979 [or any other rules framed by the RIICO and RTDC for the purpose] of vacant plots to entrepreneurs in the Industrial Areas notified by the State Government and transferred to the said Corporation.”
• RIICO Disposal of Land Rules, 1979: These rules govern RIICO’s activities in relation to industrial lands.
  • Rule 20-A: Specifies the powers of the Managing Director of RIICO.
  • Rule 20-C: Specifies the conditions for change of land use.

Arguments

The State of Rajasthan and RIICO argued that:

• The land always remained under the State Government’s control, not RIICO’s.
• RIICO had no authority to consider the land use change proposal.
• The 1959 Rules, not the 1979 Rules, applied to the land.
• Respondent No. 1 failed to revive the industrial units as required.
• The permission for conversion was meant to benefit Respondent No. 1, not public interest.
• The new government was within its rights to review decisions of the previous government.
• RIICO itself had taken a decision to not allow any conversion in terms of the usage of land.
• There is no guarantee against a change in policy by the Government.
• There can be no question of estoppel against statute.
• The transfer of the case from the Single Judge to the Division Bench by the then-Learned Chief Justice was unjustified and irregular.

Respondent No. 1 argued that:

• The Cabinet Committee decision was arbitrary and targeted Respondent No. 1.
• The Model Code of Conduct was irrelevant, as the application was filed before the election process began.
• RIICO had the authority to grant permission for conversion, as shown by 30 other instances.
• The 2007 lease deeds were signed by the Collector due to the AAIFR scheme, not because the State retained control.
• The land had been transferred to RIICO, making it the sole authority.
• The 1959 Rules were amended to empower RIICO.
• Respondent No. 1 acted on the approvals granted by RIICO, invoking promissory estoppel and legitimate expectations.
• A change in government cannot be the reason for cancelling a decision taken by the previous government.
• Governments cannot blow hot and cold and are not permitted to approbate and reprobate.
• Article 138 of RIICO’s AoA could not have been resorted to for directing cancellation.
• The Order of 18.09.1979 had stated, in unequivocal language, that all industrial areas would be transferred to RIICO.
• The State Government has, in fact, taken a stand in another case, whereby it accepts the transfer of such lands to RIICO has already taken place.
• The lack of a show cause notice or an opportunity to Respondent No. 1 to defend itself is fatal to the Appellants’ case.
• The arguments regarding the failure of the AAIFR scheme were irrelevant and beside the point.

The Appellant Unions argued that:

• The unions have challenged the initial transfer lease deed to Respondent No. 1 signed in 2007.
• The Appellant Unions had accepted the AAIFR scheme only on the basis that the industrial units at LIA, Kota, would be restarted.

The State of Rajasthan and RIICO rebutted the arguments of Respondent No.1 by stating that:

• The act of the new government, following elections, going into the decisions of the earlier ruling party is legally acceptable.
• There is no fetter on the power provided under Article 138 of the AoA of RIICO to issue directions to the Corporation.
• It is only the subsequent government that is competent and capable of looking into the decisions taken by the previous regime.
• RIICO is nothing more than a company and the 1979 Rules are framed under its AoA.
• Rule 11A is the appropriate provision in the 1959 Rules to govern the usage and utilization of the land.

Submissions

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the LIA, Kota has been always under the management and control of the State Government or it was transferred to RIICO pursuant to Government Order dated 18.09.1979?
2. Whether the 1979 Rules of RIICO are statutory in nature?
3. Whether failure to observe Principles of Natural Justice by the State Government vitiated its decision to annul the permissions/approvals granted by RIICO in favour of Respondent No.1?
4. Whether the State Government could have exercised its powers under Article 138 of the AoA of RIICO to direct cancellation?
5. Whether the Rules of Business were not followed?
6. Does the Doctrine of Legitimate Expectations and Promissory Estoppel apply in favour of Respondent No. 1?
7. Whether the Appellant Unions are entitled to relief?

Treatment of the Issue by the Court

Authorities

Decision of the Supreme Court

The Supreme Court allowed the appeals filed by the State of Rajasthan and RIICO. The Court held that the State Government had the authority to cancel the permissions granted by RIICO for the change of land use. The Court quashed the judgment of the High Court and upheld the State Government’s decision. The Supreme Court found that RIICO did not have the authority to grant the change of land use and that the State Government’s actions were valid. The Court also stated that the principles of natural justice were not violated, and that the doctrines of legitimate expectation and promissory estoppel did not apply in this case.

Conclusion

The Supreme Court’s judgment in Bishambhar Prasad vs. Arfat Petrochemicals reaffirms the State Government’s ultimate authority over land allotment, particularly in industrial areas. The case underscores the importance of adhering to the legal framework and the limits of authority for state industrial development corporations. The ruling clarifies that while RIICO is empowered to develop industrial areas, the ownership and control of the land remain with the State Government. This judgment serves as a significant precedent for future cases involving land allotment and the powers of state development agencies.